Canada furthers investment in GHG reductions

The Canadian government plans to have C$93bn ($67.5bn) in federal incentives up and running by the end of the year to spur developments in clean energy technology, hydrogen production, carbon capture utilization and storage (CCUS) along with a new tax credit for electric vehicle (EV) supply chains.

The Canada Department of Finance, in its 2024 budget released on 16 April, said it expects to have the first planned investment tax credits (ITCs), for CCUS and renewable energy investments, in law before 1 June.

The ITCs would be available for investments made generally within or before 2023 depending on the credit.

The anticipated clean hydrogen ITC is also moving forward. It could provide 15-40pc of related eligible costs, with projects that produce the cleanest hydrogen set to receive the higher levels of support, along with other credits for equipment purchases and power-purchase agreements.

The government is pursuing a new ITC for EV supply chains, meant to bolster in-country manufacturing and consumer adoption of EVs with a 10pc return on the cost of buildings used in vehicle assembly, battery production and related materials. The credit would build on the clean technology manufacturing ITC, which allows businesses to claim 30pc of the cost of new machinery and equipment.

To bolster reductions in transportation-related greenhouse gas (GHG) emissions, the government will also direct up to C$500mn ($363mn) in funding from the country's low-carbon fuel standard to support domestic biofuel production.

Transportation is the second largest source of GHG emissions for the country, at 28pc, or 188mn metric tonnes of CO2 equivalent, in 2021.

But the province of Alberta expressed disappointment at the pace of development of ITC support that could help companies affected by the country's move away from fossil fuels.

"There was nothing around ammonia or hydrogen, and no updates on the CCUS ITCs that would actually spur on investment," Alberta finance minister Nate Horner said.

The incentives are intended to help Canada achieve a 40-45pc reduction in GHG emissions by 2030, relative to 2005 levels. This would require a reduction in GHG emissions to about 439mn t/yr, while Canada's emissions totaled 670mn in 2021, according to the government's most recent inventory.

The budget also details additional plans for the Canada Growth Fund's carbon contracts for a difference, which help decarbonize hard-to-abate industries. The government plans to add off-the-shelf contracts to its current offering of bespoke one-off contracts tailored to a specific enterprise to broaden the reach and GHG reductions of the program.

These contracts incentivize businesses to invest in emissions reducing program or technology, such as CCUS, through the government providing a financial backstop to a project developer. The government and developer establish a "strike price" that carbon allowances would need to reach for a return on the investment, with the government paying the difference if the market price fails to increase.

CGF signed its first contract under this program last year, with Calgary-based carbon capture and sequestration company Entropy and has around $6bn remaining to issue agreements.

To stretch this funding further, the Canadian government intends for Environment and Climate Change Canada to work with provincial and territorial carbon markets to improve performance and potentially send stronger price signals to spur decarbonization.

By Denise Cathey